By Vipal Monga and David Benoit

July 19, 2016 5:30 a.m. ET

Companies under pressure from shareholder activists and other big investors are increasingly turning to an unlikely source for help: mom and pop.

Railroad operator CSX Corp, agriculture giant DuPont Co. and others are analyzing voting data and adopting new marketing techniques to target individual investors in corporate elections over everything from board makeup to executive pay.

CSX, stung by defeat in a campaign against activists, jazzed up its shareholder mailings and now even plants trees to encourage individuals to vote. DuPont launched an ad blitz aimed at small shareholders as part of its successful effort to fend off activist investor Trian Fund Management LP. And Humana Inc. hit the phones to secure enough votes for its proposed merger with Aetna Inc.

To win over those shareholders, companies are borrowing tactics from the political realm, where voter turnout may help determine who becomes the next president, said Eric Cantor, the former House majority leader who is now vice chairman at investment bank Moelis & Co.

“A retail investor is not too dissimilar to an unlikely voter who is not registered,” he said. “The universe of voters is what matters. If you expand the universe, you’ll be more successful.”

On their face, the costly and time-consuming efforts don’t make a lot of sense given trends in shareholding. A small number of big holders like BlackRock Inc. control most shares and vote religiously. Meanwhile, individuals who directly buy stock are shrinking as a portion of the total pool of shareholders and often don’t even open ballot packages before throwing them away.

But crucially, retail shareholders tend to support management when they do vote. That makes them attractive in close calls and in say-on-pay votes, where anything less than 70% support can raise red flags for governance watchers and activist investors looking for an opening.

Take Jacksonville, Fla.-based CSX. In 2008, it lost a bitter challenge from two activist hedge funds that wanted to split the chief-executive and chairman roles and change the company’s compensation structure. Since then, it has been keen to woo retail investors, who own about 30% of the company’s stock, said Mark Austin, CSX’s assistant corporate secretary.

Three years ago, the company sought help from Broadridge Financial Solutions Inc., which prepares, ships and counts most of the proxies U.S. companies send out each year. Broadridge also taps its database to develop profiles of likely voters.

Broadridge redesigned CSX’s proxy packaging, replacing formerly nondescript black and white documents with ones featuring trains streaking across sunlit fields. The packaging also prominently displays messages encouraging shareholders: “Exercise our *Right* to Vote.”

CSX also now offers to plant a tree for every registered shareholder who votes. Since 2013, it has planted 18,459 trees, according to a company spokeswoman.

Mr. Austin of CSX estimated that the company has spent hundreds of thousands of dollars on the expanded packages. He says it wanted to boost retail voting to “reduce the likelihood of unexpected results.” In 2015, 22% of CSX’s retail shares were voted. That’s up from 20% in 2013 but still below average.

Eric Cantor of Moelis & Co. says, ‘A retail investor is not too dissimilar to an unlikely voter who is not registered.’, and former House majority leader, speaks while delivering closing remarks at t Photo: Andrew Harrer/Bloomberg News



Humana last fall needed approval from 75% of its shares outstanding to proceed with its planned sale to Aetna. To pick up insurance votes, its proxy solicitor, D.F. King & Co., made more than 40,000 calls, according to a person close to the deal. In the end, the vote wasn’t close, with Humana shareholders overwhelmingly approving the deal. (Before it can happen, the proposed tie-up still needs approval from regulators.)

Proxy solicitors caution that big investors still hold sway in corporate elections. Individual investors held just 34% of shares in U.S. public companies in 2015, down from 39% in 2008, Broadridge says. And getting smaller shareholders to participate is no easy task. Mom-and-pop investors collectively voted just 28% of their shares in 2015, down from 32% in 2008.

Still, the efforts to mobilize them show that measures to improve corporate governance—such as making directors stand for election each year and giving investors a nonbinding vote on executive pay—may be making companies more accountable to all shareholders. Meanwhile, activist investors have grown in influence and the pension and mutual funds that once could be counted on to support management have become more demanding, meaning smaller shareholders are increasingly important for companies under attack.

DuPont’s ability last year to use retail shareholders to help fend off Trian has been widely discussed among companies looking for advantages against activists.

Trian wanted a breakup of DuPont and board seats, including for its co-founder Nelson Peltz. The company’s outreach included tailored mailings to retail investors, which held about 30% of the stock, and ads in hometown papers in Wilmington, Del. About half those shares voted in the contest—overwhelmingly in favor of DuPont’s chosen slate of directors.

When DuPont eked out a win by less than 6% of shares outstanding, Mr. Peltz credited retail voters.